May 17 (Bloomberg) -- U.S. Senator Charles Schumer proposed
a 30 percent capital gains tax on people such as Facebook co-founder Eduardo Saverin unless they show they didn’t renounce
their U.S. citizenship to avoid taxes.

Saverin, 30, the billionaire co-founder of Facebook Inc.,
renounced his U.S. citizenship, which was reported earlier this
month in advance of tomorrow’s initial public offering that
values the social network at as much as $104 billion. He will
save at least $67 million in income taxes by dropping his
citizenship, according to data compiled by Bloomberg.

“Eduardo Saverin wants to de-friend the United States of
America just to avoid paying taxes,” Schumer, a New York
Democrat, told reporters today. “We aren’t going to let him get
away with it.”

Schumer’s proposal would empower the Internal Revenue
Service to impose a 30 percent capital gains tax on future
investment gains of wealthy individuals who the agency decides
renounced their citizenship to avoid taxes. It also would bar
such people from re-entering the U.S. Schumer said he will
advance the legislation “as quickly as possible.”

“This tax-avoidance scheme is outrageous,” Schumer said.
“This is a great American success story gone horribly wrong.”

Saverin’s Decision

Saverin, who was born in Brazil and became a U.S. citizen
in 1998, said in a statement today that his decision to drop his
U.S. citizenship “was based solely” on his desire to live and
work in Singapore, where he has resided since 2009. Singapore
doesn’t impose a tax on capital gains.

“I have paid and will continue to pay any taxes due on
everything I earned while a U.S. citizen,” Saverin said. “It
is unfortunate that my personal choice has led to a public
debate, based not on the facts but entirely on speculation and
misinformation.”

Facebook plans to raise as much as $16 billion in its
initial public offering, the largest in history for a technology
company. Saverin’s stake is about 4 percent, according to the
website whoownsfacebook.com, and may be worth as much as $2.89
billion, based on the company’s 1.898 billion total shares
outstanding. His holdings aren’t listed in Facebook’s regulatory
filings.

Saverin, who helped Mark Zuckerberg start Facebook in a
Harvard University dormitory, joins a growing number of people
giving up their citizenship ahead of a possible increase in tax
rates for top earners.

Top Tax Rate

Unless Congress acts, the income tax rate on top U.S.
earners like Saverin will rise to 39.6 percent from 35 percent
on Jan. 1 when the George W. Bush-era tax cuts expire. The top
tax rate on capital gains will increase to 23.8 percent from 15
percent.

Also set to take effect Jan. 1 are portions of the Foreign
Account Tax Compliance Act, which seeks to prevent tax evasion
by U.S. citizens with offshore accounts. The 2010 law requires
financial institutions based outside the U.S. to obtain and
report information about the accounts of U.S. clients.

Last year, 1,780 people renounced their citizenship, up
from 235 in 2008, Schumer said.

Saverin’s name is on a list of people who chose to renounce
citizenship as of April 30, published by the Internal Revenue
Service. He made that move “around September” of last year,
his spokesman, Tom Goodman, said in an e-mailed statement this
month.

Net Worth

Schumer’s proposal requires the IRS to determine whether
individuals with a net worth of at least $2 million, or who have
an average income-tax liability of at least $148,000, renounced
their citizenship for tax-avoidance purposes.

If the IRS determines that tax avoidance was a main reason
for renouncing citizenship, that person “will be barred from
any type of re-entry into the United States,” according to a
summary of the legislation provided by Schumer’s office.

Current law empowers U.S. officials to deny a visa to a
former citizen who is determined to have renounced citizenship
to avoid taxation.

Senator Jack Reed, a Rhode Island Democrat, sent a letter
to Homeland Security Secretary Janet Napolitano asking her to
bar Saverin from entering the U.S.

“By all accounts Mr. Saverin has renounced his U.S.
citizenship for the purposes of avoiding taxes despite taking
advantage of the multiple opportunities afforded to him by the
United States,” Reed said in the letter.

Enforcement Mechanism

Schumer said current law lacks an enforcement mechanism and
no one has been barred from re-entering the U.S. for that
reason. “Our bill fixes this,” he said.

“Setting up a mechanism may be a good way of saying, ‘We
really, really, mean this,”’ Crystal Williams, executive
director of the American Immigration Lawyers Association, said
today in a telephone interview. She said it may be difficult for
the IRS and immigration officials to coordinate.

“Whenever two agencies try to work together, there are
intrinsic pitfalls in that,” she said.

More broadly, Williams said, enforcing Schumer’s proposal
might run up against the “perpetual problem of trying to figure
out what’s in a person’s mind” when he or she gives up U.S.
citizenship.

While noting that he wasn’t familiar with Schumer’s
proposal, Senator Orrin Hatch of Utah, the top Republican on the
Finance Committee, said he opposed people giving up their
citizenship to avoid paying taxes.

“It always bothers me when somebody renounces his
citizenship in the greatest country on Earth just to save money,
save taxes,” Hatch said in an interview. “I was really upset
at Eduardo Saverin for doing that, and there are others who are
doing it too.”.

Senator Charles Grassley, an Iowa Republican, said an
overhaul of the tax code is what’s needed.

“If we had tax reform, this wouldn’t be happening,” said
Grassley, a former chairman of the Senate Finance Committee.